Faces of Florida Investing

Once, the private equity investment market in Florida consisted of Miamibased Trivest Partners, founded in 1981 and the oldest frm in the Southeast. It's still active and is No. 34 on Florida Trend's annual ranking of the largest private companies in Florida. Now, however, the private equity ranks are thick with other players, some with considerable scope. They include Boca Ratonbased Sun Capital (No. 1 on our private companies list), the private equity arm of H.I.G. Capital Management (No. 3) and a growing number of other firms such as Palm Beach Capital, founded in 2001; Boyne Capital Partners in Miami, started by veterans of Trivest and H.I.G., and Pine Tree Equity Partners, whose managing partner Jeff Settembrino was a Trivest principal before founding Pine Tree in 2007.

The number of private equity and venture capital firms in Florida is growing, seeding Florida's future investing market with a cohort of talent - "people who will hopefully be investing in and around the state for 20 years," says attorney David Felman of Hill Ward Henderson in Tampa.

For those not up on the lesser-known Greek deities, Caerus was the one who represented opportunity and good fortune.

The four partners who founded Caerus in 2011 worked as "fundless fnancial sponsors," investing their money alongside that of high net worth investors on a deal-by-deal basis. Those investors encouraged them to start a fund sooner than they had planned.

Today, the firm is about halfway through raising its first $20 million to $25 million fund thanks to an investment by a single, undisclosed "multi-billion dollar" family office, which anchors the fund, along with significant investments by two other family offices.

The fund's first investment was a Troy, N.Y., company called Paper Battery that makes ultracapacitors that promise to dramatically increase battery life. Their next three were in mobile payments, fitness tech and wine and spirits brand builder Island Club Brands in West Palm Beach, the only Florida-based firm among their investments.

The four founders and a principal, who has joined them, range in age from 28 to 40. The founders are consumer tech company entrepreneur Greg Borchardt, a Brown University grad and Wharton MBA; his fellow Brown grad and a former analyst at Neuberger Berman and Salomon Bros. Investment banker Zac Cherry, the only original Floridian in the bunch; angel investor James Holmes, formerly of a Palm Beach Gardens real estate development firm; and Wharton MBA Brodi Jackson, who in investment banking at Goldman Sachs helped start a business unit that reached $3.5 billion in assets under management in three years.

Jackson and Borchardt say Caerus wants companies that have proven their concepts and have shown some ability to scale.

They say they've been surprised at how good Florida's investing environment is, encouraged by the accelerators, incubators and university efforts to build companies. They have involved themselves in associations and groups. "We're trying to help as much as we can the startup ecosystem in south Florida and really Florida as a state," says Borchardt.

Dave and Kathleen ChitesterFoundersFloridaFunders, Tampa

Dave Chitester, 62, and his wife, Kathleen, 55, have started a number of companies and know "how hard it is to get funding," David Chitester says.

That was part of the inspiration for FloridaFunders, a Tampa-based internet portal that connects investors to early-stage Florida companies. The first investment made through its portal was $80,000 from investors to SavvyCard, a St. Petersburg company that offers an online business card linking businesses to customers.

FloridaFunders hopes to make similar such marriages between investors and companies having trouble raising the $250,000, $500,000 or $1 million needed to get their companies big enough to attract investment funds. The companies may lack the network now to find investors. The investors, meanwhile, may want to back a high-risk, high-reward company but lack the time to scout investments or lack the legal or accounting resources to structure a deal. Or, they may have some money - maybe $5,000 or $10,000 - to invest but don't want to commit the larger sums needed to be an angel investor.

The Chitesters' past companies include engineering company Chitester Management Systems, which was sold to Hill International, and online ed company RedVector.com, which was sold to a group led by Stonehenge Growth Capital.

Robert FaberPrincipalBallast Point Ventures, St. Petersburg

For the kind of investment that Ballast Point Ventures is looking to make with its latest fund, says Robert Faber, look to PowerDMS, an Orlando document management software company. Ballast Point put $5.3 million into the company in April, and the 34-year-old Faber took a seat on its board. PowerDMS typifies Ballast's target investment - a company in the Southeast U.S. with at least $2 million in revenue, prospects for rapid growth, talented management.

Faber joined Ballast Point, which has been around for 12 years, in 2010. A native of Memphis, Tenn., Faber went to Princeton for his undergrad degree in history - Princeton has no business college - and in 2003 joined Wachovia's leveraged finance group in Charlotte, N. C., and then its private equity Wachovia Capital Partners (now called Pamlico Capital) before going to graduate school at Dartmouth's Tuck School of Business. His Southeast roots attracted Ballast Point - it focuses on the Southeast and Texas - when it looked at Tuck and other business schools for new hires.

He says joining Ballast Point was like joining an apprenticeship program with seasoned leaders who could offer counsel on what's worked in the past and what mistakes to avoid. "You're always learning," Faber says. "I have been fortunate to have great mentors at Ballast Point to help me learn the growth investing business."

Ballast Point recently had its first close on $115 million in its third fund on the way to a $140-million target. It looks across all industries but historically has invested primarily in tech-enabled business services, communications and health care.

Scott LeePrincipalHealthEdge Investment Partners, Tampa

Scott Lee started young in the health care industry. His grandfather, Jack Murray, founded Tampa third-party administrator HealthPlan Services and took it public. Lee, a Tampa native, first worked in the company mailroom at age 11.

After college, he went to New York and worked for a hedge fund investor and then an investment bank. Back in Tampa, Phillip Dingle, who had been chairman and CEO of the company Lee's grandfather started, and investment banking and private equity veteran Brian Anderson were starting private equity firm HealthEdge Investment Partners, an investment firm focused solely on health care businesses with revenue of $5 million to $75 million. Lee returned to Tampa in early 2006 as an investment analyst to join them. It "ended up being a huge blessing and was meant to be," Lee says.

The firm raised $60 million in 2006 and invested it into six companies. A second, $75-million fund was closed in 2013.

The 31-year-old is also busy with the family office started by his grandfather and two uncles, which has invested in MFLightwave Custom Cable in Tampa and PDQ restaurants in the Carolinas. Like other private equity investors, Lee says valuations for companies are going up. The key to success is strong management at the companies, Lee says. "At the end of the day, it really boils down to their ability to execute and grow," Lee says.

UVA grad: A disproportionate number of Tampa area venture capital and private equity partners and principals attended the University of Virginia. Lee studied finance, accounting and management there. He also studied at the London School of Economics.

In 2012, Ireland native Thalius Hecksher moved to Fort Lauderdale to open an Americas office of Apex Fund Services, a company that does the back-office support for investment funds and has $28 billion in assets under management globally. Apex got its toehold in the Americas, and Florida got an unabashed salesman for the Sunshine State.

His aim, he says, in 2012 was to use south Florida as a base to service the Americas. He quickly discovered the investment funds that already were here and that more were on the way. "We started to focus a lot more locally," Hecksher says. A New York Post story in 2013, headlined "Wall Street Flees NY for Tax-Free Florida," quoted him, and soon he was on cable TV news and other media outlets.

Florida's lack of an income tax, lower cost of doing business, lifestyle, growing talent pool and proximity to high net worth individuals are all attractive to investment managers, he says. Also, a fund manager no longer needs a Manhattan office to raise capital. Plus, south Florida offers easy fight connections to the rest of the country, Europe, Central and South America and to the Caymans and other islands important in global finance.

South Florida economic development groups have made recruiting more hedge funds, private equity and other investment funds a priority ["Hedge Fund Infux," May 2013, FloridaTrend. Com]. They and Hecksher credit Gov. Rick Scott for helping make the sale. Scott had his own private equity firm before running for governor and has been very supportive of efforts to get more firms to relocate here, Hecksher says.

Will DowdenPartnerKLH Capital, Tampa

In 2005, John Kirtley and Jeffrey Leck, co-founders of Florida Capital Partners, joined again to form private equity firm KLH Capital in Tampa. For an early hire, they reached out for suggestions to a professor at their alma mater, the University of Virginia. Before long, a UVA student, Will Dowden, was on board. He did three platform investments (a company that can serve as a foundation for future acquisitions) in his first three months - "kind of baptism by fire" - and he's had a hand in 40 deals the firm has done in his seven years. He became a partner after four of those years. He's only 29.

Dowden's youth makes it delicate sometimes to advise successful entrepreneurs with 30 years in business behind them, he says. "The good news is our hearts are genuine. We do want to help these guys. When we make money, they make money," Dowden says. And, he adds, "Sometimes they prove me wrong."

KLH expects to make five to seven more deals from its second, $91-million fund, which was closed in 2011. Typically, it takes a majority stake as it recapitalizes companies or works with a company management to buy the business. The management keeps a significant stake.

KLH invests in companies largely invisible to consumers and isn't hunting the next Twitter, Facebook or venture capital startups. Most are business-to-business. An example: Tampabased Uretek Holdings, which injects a polymer into ground to stabilize soil and foundations. Another: A New Jersey company that cleans grease from commercial food service exhaust fans to prevent fires.

With multiples climbing, it's become harder to find deals that promise an attractive return, Dowden says. "We've been looking at a lot of deals. We have not connected on any so far this year," he said in August.

Mark DanziPrincipalMangrove Equity Partners, Tampa

Mark Danzi came to private equity dealmaking from the law. A native New Yorker, he went to law school at American University and practiced law in New York doing M&A work. He married a Tampa native. "When our first child was 6 months old, we knew it was time to get out of New York City," he says.

He was with the Hill Ward Henderson law firm in Tampa in 2013 when the partners at private equity firm Mangrove Equity Partners asked him to join. Mangrove, which began operating in 2007, was founded by Glenn Oken and Matt Young of Florida Capital Partners and Hunter Reichert of Harren Equity Partners to focus on companies with up to $100 million in revenue. Danzi's still a lawyer, but his primary role now isn't the law. He specializes in transaction execution. "To me, it was an exciting opportunity to do something a little bit different," he says.

Mangrove, with its $125-million fund - its second - particularly likes manufacturers of non-commodity industrial products and "mission critical" industries services that provide a good-margin, in-demand service such as Integrated Global Services, a Virginia-based company that coats the insides of boilers and other industrial facilities with liquid metal to lengthen their lives. It's also invested in makers of branded retail products such as Excalibur Crossbow, a company with a loyal hobbyist following.

Mangrove usually buys 60% to 80% of a company. Typically, in four to six years, the company is sold, hopefully earning Mangrove a tidy return and the owner a second payday.

Fast-growing Boca Raton-based personal emergency response company MobileHelp [“A Good Call,” February 2012, FloridaTrend.com] has posted a 163% compound annual growth rate since 2011 and raised $15 million since 2008 to fund growth.

Earlier this year, it raised an undisclosed amount from Tampa-based private equity firm Stonehenge Growth Equity Partners, which itself spun off from Stonehenge Capital last year.

Stonehenge Growth managing partner Steve Lux says the money came from a $40-million fund the firm raised. It's focused on companies that can accelerate growth rather than on businesses still developing their product or service.

The fund will target investments of $1 million to $5 million. Companies should be showing 20% to 30% growth. As a technology-enabled Florida company with solid growth and a recurring revenue business model at the intersection of health care and technology, MobileHelp is in Stonehenge's sweet spot for investing. Stonehenge Growth also is looking at online education and software as a service in markets where people have to adopt new tools to comply with regulatory pressure.

Some Wealthy Families Are Choosing to Invest Directly

When agricultural pest control startup Pasteuria Bioscience, an Alachua company spun out of a University of Florida tech incubator, needed nearly $3 million to take the next step in commercializing its first product a few years ago, it turned to venture capital investors, among them Naples-based Florida Gulfshore Capital, a firm that backed Pasteuria several times through the years.

Typically, a VC firm sets up a fund with capital raised from multiple investors, often institutional, who become limited partners in the fund. Florida Gulfshore, however, was set up to deploy the capital of just one family, the Sproul family, comprised of descendants of real estate legend Barron Gift Collier. The Sprouls have been real estate operators and real estate direct investors for years. More recently, they've been taking the money they gave to others to invest for them and instead invested directly themselves through Florida Gulfshore and a private equity arm, Trent Capital.

Other wealthy families also are hiring professionals to do such direct investing in venture, private equity and similar funds rather than becoming limited partners of an investment firm's fund, says Greenberg Traurig corporate and securities partner Stanley "Stash" Jacobs Jr. "We are seeing more interest from wealthy families looking to directly invest their money into companies and open up their own shop or family office, with dedicated investment principals who actively search for direct investment opportunities," Jacobs says.

Direct venture investing allows a family to make its own investment decisions in the high-risk, high-reward venture capital fi eld, for example, over a time horizon that suits them rather than according to a fund's rules. They're also free to choose deals compatible with a family's goals, whether financial or reputational. Also, says Richard Molloy, Florida Gulfshore's founding executive, direct investing provides more flexibility in appropriately funding a company, being able to choose equity or debt depending on what best suits a company, and direct involvement at the board level. Patrick George, chief investment officer for Halstatt, the Sprouls investment company, says direct family investment brings more information about a company's performance than provided by a fund's quarterly reports, newsletters or annual dinner. Direct investing also suits the entrepreneurial Sprouls. "For the most part, we're going all direct," George says.

The question for wealthy families thinking of direct investing is whether they can match the returns that funds earn. A fund usually earns its return on outsized performance by a minority of its portfolio companies, meaning that families have to have sufficient capital to diversify their picks. A family also needs expertise beyond the industry where its fortune was made.

Before the Sprouls hired him in 2009, George had been president of a clean-tech firm who led venture investing for Compaq Computer and was a McKinsey & Co. Consultant. Florida Gulfshore founding executive Molloy was a principal with Booz Allen & Hamilton in the consumer, industrial products and health care practices.

Florida Gulfshore typically invests $500,000 to $1 million initially. Pasteuria was its first direct investment. The company was sold in 2012 for an announced $86 million, with additional deferred payments of up to $27 million.

Started by veterans of longtime Boca Raton private equity firm Brockway Moran & Partners, Palm Beach-based Blue Sea Capital launched in 2013 and in June beat its $300-million target for raising its first fund by $27 million. The firm's advent indicates the growth and spread of Florida-based private equity firms.

Blue Sea partner Richard Wandoff says Blue Sea will focus on aerospace and defense, health care and industrial companies in North America. It wants companies with an enterprise value of up to $200 million that require an investment of no more than $60 million. "We are absolutely targeting and would like to do investing in the state of Florida," he says. "The opportunities with respect to aerospace and defense and health care are very, very good in Florida and probably better than in 48 of the 50 states."

Its first acquisition, with China-based CITIC Capital Partners, was DDS Lab, a fast-growing Tampa-based dental lab company that manufactures domestically and in China and distributes from Tampa, Richard Wandoff Mark Silk James Davis Texas and Los Angeles. Its second acquisition was California aerospace company Sunvair. Blue Sea formed a similarly named holding company to be a platform for additional acquisitions.

In addition to Wandoff, Blue Sea's partners are former Brockway partner James Davis and California-based aerospace entrepreneur and executive Mark Silk. Blue Sea's senior adviser is Peter Brockway. Some 10% of the money Blue Sea raised for its first fund came from Blue Sea's partners, principals and other executives.

Nobody crashed in Monday’s first hours of the new “wrong way” interchange in Miami. But that’s because Miami cops guided confused drivers in the manner of a first-grade teacher keeping wayward students in line on the first day of school.